Biotech Holding BIOHF is my contribution.
I have not written this myself but strong believer and shareholder.
Biotech Holdings (BIO/CDNX,BIOHF/NASDAQ) has great upside potential. Here's why.
Type II diabetes is a major health problem around the world, affecting up to 20% of the adult population in some countries. It is also a medical condition which, for the most part, has not been effectively treated in the past. Furthermore, the incidence of Type II diabetes is increasing at an alarming rate in North America due to our aging "baby boomer" population and other lifestyle factors, such as inappropriate diet and lack of exercise.
Analyst estimates vary, but one independent report by Deutsche Morgan Grenfell (a leading financial institution) has projected the market for oral anti-diabetic drugs to grow at 50% on an annual basis over the next few years to reach more than $5 billion in size by 2003. As a result, it's now become one of the most attractive target therapeutic markets for the pharmaceutical industry.
The potential for an effective new product in this market is huge. As an example, in 1997, Warner-Lambert launched a new product for the treatment of Type II diabetes in the U.S., called Rezulin. By the end of 1998, over 1.6 million individuals were estimated to have used the product, generating sales of almost $750 million (US).
During 1999, two other insulin-sensitizer drugs also received FDA approval - Avandia from SmithKline Beecham, and Actos from Lilly. However, these products are chemically related in being thiazolidinediones or TZD-class insulin-sensitizing drugs, and have potential safety concerns (ie-all patients using them are required to have regular tests to monitor for liver toxicity and other problems).
Biotech's drug, Diab II, has a very different chemical structure, and appears to be unique in both its mode of action and safety profile. In fact, a recent clinical study, conducted by an independent third party, indicated that it is as good as, or better than, other existing drugs in terms of its clinical efficacy, without producing any toxicity or other serious side effects, such as weight gain.
As the market continues to expand, Diab II has the potential to become the dominant or preferred therapy for Type II diabetes, as well as for impaired glucose tolerance (IGT), the precursor condition. More important, since it is a treatment for a chronic health condition, the business model for Diab II is very attractive - every new patient starting on Diab II will likely continue on the product for life!
Being a small R&D drug company, Biotech's management have taken a somewhat unconventional approach to commercializing the product. Rather than focusing initially on the North American market, they have licensed it for sale in other global markets such as China and Latin America (where the incidence of type II diabetes is very high, and where it is easier to get regulatory approval) to generate revenues quickly, and to put them in a stronger negotiating position for licensing the product in other major global markets.
Diab II is currently approved for sale in China, although it is not covered by their national health formulary as yet. However, the product has been strongly endorsed by the Chinese medical community, and the company has been "encouraged" to apply for formulary listing. At present, the Chinese government is revamping their overall healthcare system to move towards more of a privatized plan managed by third party insurers. Once the specifics of this plan are in place, Diab II is expected to be listed without further delay, and to quickly start generating significant revenues (note that there are an estimated 50 million type II patients in China, with about 28 million currently under drug treatment). As Biotech holds over 60% equity in Volque
Pharmaceuticals, their licensed distributor in China, they will receive most of these sales.
Over the past few months, a number of important licensing deals have been made with major local drug companies in various Latin American countries, including Brazil,
Argentina, Venezuela, Peru, and Chile. Licensing agreements are now also being finalized for other countries, such as Mexico, as well as in the Middle East, South Africa, and southern Europe (Italy, Spain, Turkey, etc). And, at least one major U.S. multinational drug company has signed a preliminary confidentiality agreement, and is looking closely at the product for licensing in North America, and possibly western Europe.
As the product is approved and becomes covered for reimbursement in these countries (potentially within the next 6 to 8 months), sales of Diab II are forecast by Biotech's management to increase very quickly.
At present, the company has about 43 million shares outstanding (with an estimated 15 million in the market float). Assuming that over the next 3 years, Diab II sales reach only $200 million (US), a very conservative number, earnings for BIO could easily be more than $1.00 (US) per share.
Note that the company is structured such that revenues generated for Diab II will be streamed through an offshore legal entity in the Caribbean, greatly minimizing the
corporate tax which the company would otherwise have to pay (this is a well established tax management strategy used by a number of companies and fully recognized by Revenue Canada).
With these earnings, BIO could easily be trading at more than $25.00 (US). It's shares are currently trading at about $1.00. Clearly, Biotech Holdings is a very undervalued company!
Several important news releases are expected over the next few weeks and months which should further enhance the overall profile of the company with the investment
community, and give it the credibility and respect which it deserves. Expected announcements include confirmation of the formal submission of Diab II for regulatory review in Brazil, additional licensing agreements for other international markets, and a final licensing agreement with a major US-based multinational drug firm for North America and western Europe.
While Diab II is the really exciting part of this story, Biotech also has a number of patents on some very interesting personal care products (sunscreens, bath balls, etc), and is currently producing private label or house brand products for a growing number of US retailers, including the Disney Stores (eg-A Bugs Life bath product). Sales from these products could potentially generate sales of $7-8 million in the next 12-18 months, and provide a positive cash flow for the company by the end of this current fiscal year (March 2000). This segment of Biotech's business, itself, justifies the stock price being at twice its current level.
All in all, it's a very special investment opportunity. For more details, check out their website, at biotechltd.com, or call Austin Rand (their Investor Relations contact) at 1-888-216-1111. |
